Amazon's Inventory Policy Essay

1605 Words Sep 30th, 2013 7 Pages
a. Managing Inventory is one of the most important tasks of a retailing company. If there are not enough goods in stock, some of the customers might be disappointed. Stocking too many will reduce the profit margins. Do you think Amazon.com adopted the right strategy while trying to manage its inventory? Was it successful in executing this strategy?
Ans:
Amazon’s was started with a focus on the following four value propositions: * Convenience * Selection * Price and * Customer Service
With these objectives Amazon opted for e-business of retailing. This offered the convenience. Amazon offered more choices than a conventional retailer. Since, it had the volumes it was able to offer products cheaper to the customer. It
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It was impossible for it to predict the demand with certainty and Drop Shipment allowed it to push the responsibility of maintaining inventory on the manufacturers. However, it also made it difficult for Amazon to pool the goods in multi categorical customer orders. The Drop Shipment approach enabled Amazon to cut down its fixed costs which were 10-15% of the sales. Most of the products Amazon sells are smaller in size and value and have certain level of obsolescence. Therefore Drop Shipment helped it to overcome these issues.
3 Outsourcing Approach
Outsourcing is recognized as loyal service providing system. The term 'outsourcing' refers to as a system wherein goods and services are procured from the external sources to the organization. It is a system which accounts for the whole system of planning, management and operation to function from a self-regulating third party.
At a matured phase of inventory control, Amazon decided to outsource its inventory management and concentrate more on its core business activities and expand profoundly which could help the company capture a huge market share. Outsourcing enabled Amazon to achieve the following: * Better and faster shipping of the orders. * Reduction in inventory levels and lower costs in maintaining warehouses, distribution centers and inventory costs. * Higher revenue.
However, Amazon is exposed to the following

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